European markets up for second consecutive week

European equity indices has a second consecutive positive week as some economists believe that the economic downturn could bottom out in the second half of the year. In fact, the Xetra Dax index in Germany gained 7.05% while the CAC 40 Index in Paris was up 5.01%. The DAX is now up 15% since the 52 week low set on October 24, 2008.

In the US the equity indices also had a positive week with the Dow Jones Industrial Average ending the week up 3.5% while the S&P 500 was up 5.2% despite the announcement that the US economy lost 598,000 jobs in January and unemployment reaching 7.6%, its highest level in 1992.

However, the markets were lifted as they anticipated the approval by the US Senate of the $780 billion stimulus package after days of wrangling.

Closer to home this week the Bank of England cut interest rates by another 50 basis points to 1% while the European Central Bank left them unchanged at 2% 'after deep and profound meditation'. The FTSE100 Index in London gained 3.4% as sterling continued to regain lost ground against a basket of currencies.

The Malta Stock Exchange Index closed at 3,047.036 points on Friday a drop of 3.01 per cent this week. During the week, seven equities were negotiated, six of which closed down on the week and one remaining stable.

Fimbank plc retained last week's price of $1.47 when on Wednesday 11,300 shares were negotiated across four deals. Lombard Bank plc lost most ground as its share price dropped by 6.36% and closed at €2.65.

During the week 239 deals were registered on the stock exchange for a turnover of over €6.3m. In the equity market 98 transactions were carried out for a total value of €248,592. In the Corporate Bond market 87 transactions for a total value of €593,057 were executed. While in the Government Bond market 40 transactions were executed for a value of €588,066. Thirteen transactions were carried out in the Treasury Bills market for a value of over €4.9m.

During the week Bank of Valletta plc (BOV) was the most active as 38,629 shares were negotiated across 45 deals for a total value of €98,866. The share price dropped by 3.85% to €2.50. On Monday BOV issued a company announcement in relation to the performance of the Bank from October 1, 2008 to date.

In a long statement the bank stated that as had been communicated to shareholders in the annual report and during the annual general meeting, the first quarter of this financial year witnessed a continuing period of extreme nervousness and volatility in the international financial markets. This as major governments around the world took exceptional measures in an attempt to stabilise the global financial system following the widespread fallout in the wake of the failure of Lehman Brothers in mid September. Markets have continued to re-price risk and to turn attention and concerns to the likely impact of the impending recession on the wider economy.

As anticipated, the impact of the present situation has been that BOV's financial markets portfolio has witnessed further unrealised fair value mark downs during the period under review. The portfolio continues to be spread across a wide spread of holdings of predominantly highly rated sovereign/supranational, corporate and financial sector debt securities of moderate duration, and the expectation of the board remains that much, but not all, of the unrealised mark downs will be clawed back over time, as the majority of holdings are retained through to redemption.

To date, the experience has been that all but a very small number of the holdings in the portfolio have and continue to pay interest and meet redemption obligations on due date.

Furthermore, the bank reported that co-ordinated measures taken by central banks have included radical reductions in interest rates, in an attempt to counter the sharp downturn in economic activity being experienced on a global basis.

BOV has passed on much of this rate cut to its customers, and this will have an adverse effect on the profitability of the bank, both because of the lag or delayed time effect on the re-pricing of term deposits, and also because continuing competition for deposits has resulted in a compression of the net interest rate margin.

On the corporate, retail and home loans sides of the business, there has, to date, been no evidence of any significant deterioration in credit quality, but a modest slowdown in the demand for credit, particularly on the home loans side, has been seen.

Demand for investment and insurance products has remained subdued, although there has been something of an improvement since the turn of the year. Commission income on other banking services has shown a satisfactory increase over the corresponding period last year. Costs remain under tight control, running at close to FY 2008 levels. Satisfactory growth in customer deposits has been sustained throughout the period under review.

The current levels of volatility being experienced on the international markets makes it extremely difficult to forecast forward performance. However, the expectation remains that FY 2009 will be a very challenging year for the BOV group.

The statement pointed out that the bank has continued with its conservative policies insofar as balance sheet management is concerned, and liquidity and capital ratios are being maintained at levels well in excess of prudential regulatory requirements.

The share price of HSBC Bank Malta plc also had a bad week as it fell by 4.02% to €2.601 as 24,561 shares were negotiated for a total value of €65,483. On Monday the board of directors of HSBC Bank Malta p.l.c. announced that it is scheduled to meet on February 20 to consider and approve the group's and the bank's final audited accounts for the financial year ended December 31, 2008. It will also consider the declaration of a final dividend to be recommended to the bank's annual general meeting.

As mentioned above Lombard Bank Malta plc lost most territory during this week. Ten deals were carried out for a total volume of 10,555 shares for a total value of €28,926. On Monday, the share price lost most ground among the traded equities as it dropped by 2.8% to €2.75, a new 17-month low, as 9,400 shares changed hands across eight deals. On Tuesday, a single deal of just 155 shares left the share price unchanged at €2.75. Then on Wednesday a single deal of 1,000 shares led to a drop of 3.64% in the share price which closed at €2.65.

Go plc lost 5.46% this week as its share price closed the week at €1.749. Seven deals were executed for a total volume of 14,530 shares and a total value of €25,639. On Tuesday, Go plc announced that it has concluded an agreement with Nextweb Limited for the transfer of Nextweb's customer base. As a result of the agreement GO will be the service provider to the said customers. However, on Wednesday Go lost most ground among the traded equities as its share price dropped by 3.73 per cent to €1.781. On Thursday, the share price fell by another 1.74% to €1.75. A single trade of 5,000 shares led to a drop of 0.06% to €1.749 in the share price of Go plc on Friday.

On Thursday, International Hotel Investments plc saw its share price lose 1.38% to €0.858 when 17,000 shares were negotiated across seven deals making it the most active equity of the day. Then, on Friday, the share price of International Hotel Investments plc dropped by 0.93 per cent to €0.85 on a single deal of 2,000 shares. For the week IHI dropped by 2.30% as 19,000 shares were negotiated across eight deals.

On the same day, a single deal of just 400 shares led to a drop of 0.04% in the share price of Malta International Airport plc which closed at €2.499.

This article which was compiled by Jesmond Mizzi Financial Services Limited (JMFS) does not intend to give investment advice and the contents therein should not be construed as such. JMFS is licensed to conduct investment services by the MFSA. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. For further information contact JMFS at 67/3, South Street, Valletta or on Tel: 21224410 or e-mail jmizzi@jmfs.net.